We took a look at arbitration agreements and here’s what we found

On Nov. 1, 2017, the President signed a joint resolution passed by Congress disapproving the Arbitration Agreements Rule under the Congressional Review Act (CRA). Pursuant to the joint resolution, the Arbitration Agreements Rule has no force or effect. On Nov. 22, 2017, the Bureau published a notice removing the Arbitration Agreements Rule from the Code of Federal Regulations. The materials relating to the Arbitration Agreements Rule on the Bureau’s website are for reference only.

Tens of millions of consumers use financial products or services like credit cards and student loans that include pre-dispute arbitration clauses in their agreements. This means that either party to these contracts can require disputes be resolved through arbitration, rather than through the court system.

These clauses are controversial. Critics of these clauses argue that they limit consumers’ ability to take their dispute to court – particularly class actions, which allow large numbers of people to seek relief together. Advocates of these clauses, on the other hand, say arbitration is quicker and more cost-effective than court proceedings.

What we covered

Since 2012, we’ve being working on a study of arbitration provisions and report to Congress, which was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010(Dodd-Frank Act). We’ve examined pre-dispute arbitration clauses in a number of different product markets:

Credit cards

Checking accounts

Payday and other small dollar loans

General purpose reloadable prepaid cards

Private student loans

Auto purchase loans and

Mobile wireless agreements

After considering dozens of comment letters and meetings with external stakeholders, we looked at nearly 850 consumer-finance agreements to examine the prevalence of arbitration clauses and their terms. We also reviewed more than 1,800 consumer finance arbitration disputes filed over a period of three years and more than 3,400 individual federal court lawsuits. We also looked at 42,000 credit card cases filed in selected small claims court in 2012.

We supplemented this research by assembling and analyzing a set of roughly 420 consumer financial class action settlements in federal courts over a period of five years and over 1,100 state and federal public enforcement actions in the consumer finance area. We also conducted a national survey of 1,000 consumers with credit cards concerning their knowledge and understanding of arbitration and other dispute resolution mechanisms.

We believe this is the most thorough empirical research on this subject, to date.

What we found

Through this research, we’ve learned that:

Arbitration agreements affect a large number of consumers – for instance, as much as half of all credit card debt and checking account deposits are subject to arbitration agreements.

Three out of four consumers surveyed did not know if they were subject to an arbitration clause.

Consumers are very reluctant to bring claims against companies on their own, particularly small claims.

Roughly 32 million consumers on average are eligible for relief through consumer financial class action settlements each year.

We found no evidence that arbitration clauses lead to lower prices for consumers.

Why it matters

Now that the report is complete, we’re going to spend time reviewing the results in order to determine next steps. The Dodd-Frank Act gives us the ability to issue regulations on the use of arbitration clauses in consumer finance markets if we find that doing so is in the public interest and for the protection of consumers.

To learn more about pre-dispute arbitration clauses and our findings check out our full report to Congress. Have you had an experience with arbitration? You can tell us your story.